September 03

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Time Warner Cable Blinks – Perfect Storm Follow-Up

With the all-important NFL Season rapidly approaching Time Warner Cable (TWC) and CBS (CBS) yesterday settled their dispute over retransmission rights. The blackout has been lifted in New York, Los Angeles and Dallas where it’s been in place for close to a month.

I wrote recently about how the balance of power was shifting from the cable companies to the content providers in my recent article The Perfect Storm. The settlement between Time Warner Cable and CBS supports this view.

In his note on monday RBC analyst David Banks said, “While terms of the deal are unknown, we believe the dispute was probably resolved in a fashion reflective of our expectations for a positive outcome for CBS.” (Something with a trajectory of $2/sub over the life of the deal) He went on to say, “With the content, especially the N.F.L. and CBS being the No. 1 network in the ratings, you just have to believe they are going to win every time.”

CBS President Les Moonves said in an email to employees, “We are receiving fair compensation for CBS content and we also have the ability to monetize our content going forward on all the new, developing platforms that are right now transforming the way people watch television.”

It’s pretty clear that when both companies stood toe to toe in negotiations, Time Warner Cable (TWC) blinked.

The world of television is changing. Cable companies will continue to see profit margins decline as customers cut the cord and move to alternative methods of viewing content.

The cable companies won’t take this lying down and will look to government to help them out. Time Warner Cable CEO Glenn Britt wants to see changes to retransmission rules. Recently he said, “We sincerely hope that policymakers heed that call and take action to prevent these unfortunate blackouts soon.”

We’ll see how this plays out in coming months but I expect content providers will continue to have the upper hand. –David Nelson, CFA

Disclosure – Funds managed by David Nelson are long Apple stock at the time of the release of this post. however, reserve the right to sell at any time. Belpointe Asset Management, LLC (“Belpointe AM”) is an investment adviser registered with the Securities and Exchange Commission (SEC).  Registration with the SEC as an investment adviser should not be construed to imply that the SEC has approved or endorsed qualifications or the services it offers or that or its personnel possess a particular level of skill, expertise or training. For disclosures visit: http://belpointe.com/disclosures/

Funds managed by David Nelson currently own CBS (CBS)